Check Your Franchise Agreement For Anti-Poaching Provisions.

Author:Dance, Jess
Position::IFA SUPPLIER FORUM SPOTLIGHT
 
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A recent survey found that 58 percent of the largest franchise systems--those with more than 500 franchise outlets in the US--have provisions in their franchise agreements that restrict the franchisee from recruiting or hiring workers currently (and sometimes formerly) employed by the franchisor or other franchisees. For years such "anti-poaching" provisions attracted little attention or scrutiny. No more! Claiming such provisions hamper worker mobility and suppress wages, regulators, legislators, and class action plaintiffs increasingly are attacking anti-poaching provisions as potential antitrust violations.

Federal Scrutiny

In 2016, the Department of Justice and the Federal Trade Commission issued guidance to alert companies that federal antitrust laws apply to competition among companies to hire and retain employees, regardless of whether those companies compete in the same market. The guidance asserts that "naked" anti-poaching agreements (that is, agreements that are separate from or not reasonably necessary to a larger legitimate collaboration between the employers) are per se antitrust violations that could result in criminal prosecution. The DOJ expects to initiate criminal prosecutions targeting naked anti-poaching agreements in the coming months. Anti-poaching agreements that do not result in criminal sanctions may still lead to civil antitrust liability.

In March 2018, Senators Elizabeth Warren and Cory Booker introduced the End Employer Collusion Act, which, if passed, would expressly prohibit anti-poaching provisions in franchise agreements. A violator would be liable for actual damages, punitive damages, and attorneys' fees and costs. A companion bill was introduced in the House of Representatives in April.

State Investigations and Settlements

In February 2018, the Washington State Attorney General's Office launched investigations into several franchisors' use of anti-poaching provisions. On July 12, 2018, Washington Attorney General Bob Ferguson announced that seven franchisors--Arby's, Auntie Anne's, Buffalo Wild Wings, Carl's Jr., Cinnabon, Jimmy John's, and McDonald's--agreed to no longer enforce anti-poaching provisions in their existing franchise agreements and to remove the language from current and future contracts nationwide. A press release warns that the Washington Attorney General will file lawsuits if other franchisors do not remove anti-poaching provisions from their agreements as well.

Other states are...

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